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Investing 101: Fire Your Money Manager

Written by: Richard Saintvilus01/02/14 - 6:30 AM EST

NEW YORK ( TheStreet) -- With 2013 now in the rearview mirror, this is the time of the year when some investors will gather at their coffee tables with their legal pads and scattered brokerage statements ready to assess their investing/trading performances for the year. Chances are they already had an idea. But why not make it official?

There will, however, be another group of investors who will be on the phone with their broker, financial planner or money manager -- someone they've entrusted with their hard-earned money to do for them what they believed they were incapable of doing for themselves. Fairly or unfairly, issuing a performance grade for that person -- as you can imagine -- is a little bit different from the grade you would give to yourself. After all, you're not the paid expert.

With the Dow, Nasdaq and S&P 500 all breaking performance records throughout the course of the year, I believe if a money manager was not able to make money in this market, she/he does not deserve the license they've been granted. Nevertheless, with the market making winners and losers out of everyone at some point or another, there is certain to be plenty of realized losses for 2013.

However, that doesn't mean the investor should accept the excuses that the money manager will typically give to justify his/her underperformance, much less for losing an investor's money in one of the strongest bull markets Wall Street has ever seen.

I will grant that performance outcomes are not always cut and dry and some results will be based on what the investor first dictated her/his investment objectives to be. But more often than not, the money manager will exploit every opportunity to paint that performance in a different light.

In a market where the Dow soared 26% and the Nasdaq added close to 40%, the money manager will make, say, a 10% gain appear more impressive than it really is. Never mind the fact that had you saved all the money paid in fees/commissions for the manager's expertise throughout the year, you would have earned back that same accumulated 10% by simply kept your money in savings account.

On the flip side, you can expect all sorts of excuses for any losses incurred during the year. And you can expect that these excuses will prey on your limited knowledge of the financial markets and any other personal information the money manager might use to disguise her/his own incompetence or miscalculations. Worse, some managers will try to create these so-called "gray areas" when there aren't any.

But investors shouldn't be fooled. These managers know all too well that the financial market is a bottom line business -- only the net results matter. But when faced with questions about their poor performances, you can expect to hear why it was not their fault and how somewhere along the way, "the market took a wrong turn." That happens to be one of the most popular cited excuses. That excuse won't work this year, though, given all of the market-beating records seen in the indexes in 2013.